India has little ammunition left to combat an economic slowdown, the country's
finance minister has admitted.

Responding to last week's poor growth figures, Pranab Mukherjee said the government would not be able to repeat the huge stimulus programme launched in the wake of the financial crisis because public finances were at breaking point. However, he suggested interest rates could be cut to ease the pressure on borrowers.

"The second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a pro-active fiscal policy," he said.

Shock GDP figures last Thursday showed the Indian economy grew at 5.3pc in the three months to March, the slowest quarterly figure in nine years. According to the International Monetary Fund, growth has averaged 6pc since 1994. It has forecast the economy to expand 6.9pc this year.

India is under pressure to rein in spending after its budget deficit widened to 5.75pc of GDP in the financial year to March. The government has set a goal of reducing the deficit to 5.1pc this year, but economists claim the target is optimistic as it is based on growth of 7.6pc.

Although there is little room for fiscal stimulus, Mr Mukherjee said the rapid fall in oil prices could allow the central bank to cut interest rates as inflation declines.

The deputy governor of the Reserve Bank of India, Subir Gokarn, also hinted at the possibility of a rate cut on June 18. He said slower growth "may have a positive, moderating impact on core inflation". In April, the bank lowered interest rates for the first time in three years, cutting by half a percentage point to 8pc.